Trade protectionism has always been a contentious political issue, and goes all the way back to Alexander Hamilton's argument for protecting "infant industries". Let's examine how such a trade protectionist policy may work: Suppose there are two firms, Firm 1 and Firm 2, and that the demand curve in the industry is given by . If Firm 1 is the "experienced foreign firm" and Firm 2 is the "inexperienced infant firm", the argument goes that the experienced foreign firm will have had enough time to achieve lower costs of production. Hence, protecting the infant industry would amount to imposing a tariff of the foreign firm, which essentially increases that firm's costs in order to make the infant industry more competitive. To that end, suppose that and . Notice that when there is no tariff (t=0), Firm 1 does in fact operate at lower costs than Firm 2.

Let's analyze this scenario by beginning to solve for each firm's best response function. In this case, we have that

and

Solve for each firm's best response.

(Trade Protectionist Question) Suppose the government imposes a tariff of t=6. What will be the equilibrium output and the profit for each firm? (Round each answer to two decimal places, for example 10.32. Also, do not use dollar signs or commas in the profit calculation. For example: 2675).

(Trade Protectionist Question) Suppose the government imposes a no, tariff so that t=0. What will be the equilibrium output and the profit for each firm? (Round each answer to two decimal places, for example 10.32. Also, do not use dollar signs or commas in the profit calculation. For example: 2675).